Mitigating resource dependence on internet visibility providers: Exploring complementarity effects in the positioning of small hotels on online intermediaries

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Abstract

By integrating a resource dependence perspective with a complementarity view, this article investigates how online visibility affects the performance of hotels, through user-generated reviews and their presence on Internet portals. Our core argument is that when firms have gained a positive reputation from user-generated reviews, they should reduce their asymmetric dependence on Internet portals. Using a unique panel dataset of 276 small and medium-sized hotels from 2012 to 2014, we have found that good online visibility and the presence on multiple Internet portals are complementary conditions for the profitability of a hotel, and that the impact on profitability, due to the number of Internet portals on which firms are visible, is negative in the case of a poor reputation and leads to diminishing marginal returns in the case of a positive reputation.

Introduction

Internet visibility is a critical resource that is necessary for hotels to interact with both their prospective and current customers. Being well positioned on the Internet can be an important criterion for a hotel to be chosen by a customer and to increase its performance. Firms, especially small and medium-sized ones, do not generally have the capability to develop a high and positive visibility on the Internet alone, and are increasingly dependent on large intermediation and advertising portals with strong market power [1]. Prior research found that when the only way a firm has of accessing a critical resource is via another firm, it falls into a situation of resource dependence. This dependence may create significant problems for a dependent firm by making it vulnerable to the opportunistic behaviour of resource providers, especially when the firms controlling these critical resources do not need to make relation-specific investments [2].

Although online visibility is a critical resource that is controlled by portals and not by single firms, few of the so-far conducted studies that have addressed the impact of online visibility on performance have used the concept of resource dependency to analyse how firms become vulnerable to portals. The works that approached the topic of online visibility with a resource dependence framework have shown that the more firms diversify and balance their presence on multiple distribution portals, the better their performance is, since they can secure a better bargaining position by having alternative ways of acquiring visibility [3,4]. Although the idea that balancing dependence on online portals has provided an important contribution to the understanding of the performance effects of online visibility for those firms where the Internet is a key distribution channel, progress in our understanding of how online visibility affects a firm’s profitability is just at the beginning. This is because visibility in the online world has been becoming a multi-faceted concept that involves balancing resources on different channels through which firms can offer visibility to their products and services. In showing the benefit of bargaining power, due to a balanced dependence on different Internet retail portals, previous studies [3,4] excluded the possibility that any attempt to reduce the asymmetric dependence on a given category of distributors could result in a decrease in a firm’s capability of building interdependencies with the providers of alternative visibility resources, or could lead to sacrifice resources for its core offline business operations.

The hospitality sector is one of the industries in which the issue of how online visibility should be accessed through different typologies of visibility providers is apparently more relevant. Online visibility is critical for hotels to attract travellers, especially from abroad, and hotels build visibility through two types of third-party online channels, namely the aggregators of user-generated recommendations and online travel agencies (OTAs). The aggregators of user-generated recommendations, such as TripAdvisor, provide their customers with a “zero moment of truth” in the online environment [5], as they play a crucial role in forming the reputation that hotels have online about their service level and their offered amenities [6]. The importance of such aggregators is due to the nature of the hospitality services as experience goods, for which quality is hard to inspect ex ante. In this way, a review acts as a substitutive mechanism of the brand, and is thus particularly important for small and medium-sized hotels, which usually rely on a weak brand. Moreover, aggregators of user-generated reviews offer hotels several operational tools to help them build their reputation in the online world and to direct traffic towards their web sites and towards OTAs, where visitors can book rooms, compare prices and obtain discounts. OTAs, such as Expedia or Booking, thus represent the second type of channel that provides online visibility to hotels. They have progressively been replacing traditional brick-and-mortar agencies in the distribution process in which customers reserve rooms and other travel-related services.

The increasing importance of OTAs and aggregators of user-generated reviews implies that managing online visibility requires a high deployment of internal resources, whose economic returns remain uncertain for hotels. The uncertainty lies in the fact that any attempt to reduce the asymmetric dependence on OTAs beyond a certain extent may not be necessary, since hotels should also direct their attention towards building and maintaining a high reputation through traveller-generated reviews. Our key argument is that a good reputation, built through travellers’ reviews, can help hotels to be in a bargaining position that makes them close to having a mutual dependence with OTAs. Under these conditions, developing relationships with too many OTAs can lead to redundant efforts and to the risk of being unable to develop interdependencies with providers of alternative visibility resources. Thus, we have attempted to develop more fine-grained knowledge on the way hotels should mitigate their relational dependence on critical resource providers in order to monetise on their online visibility to obtain superior profitability. To this end, we offer an answer to the following question: “To what extent is a balanced dependence on multiple distribution channels, such as OTAs, complementary with the reputation gained on portals that aggregate user-generated reviews?” Our hypothesis, which is based on the resource dependence theory that a balanced dependence on multiple OTAs is pointless beyond a certain number, has led us to suppose diminishing marginal returns on the number of OTAs over which a hotel is visible, when it has developed a good reputation through user-generated reviews, and negative returns, when the hotel suffers from a weak reputation.

In order to explore this topic, we have assessed the complementary effects on the profitability of hotels as a result of review scores and the presence on multiple OTAs by taking into consideration a panel of 276 small and medium-sized hotels in Italy. The online presence of these hotels on the main user-generated review platform (i.e., TripAdvisor) and on OTAs has been observed over a period of three years.

The article is structured as follows. First, we illustrate how power relationships around online visibility can be unfavourable for small firms, given the specific traits of Internet as a distribution channel in the hospitality industry. We then formalise our theoretical prediction of complementarity between the online visibility mechanisms provided by OTAs and by aggregators of user-generated reviews. After presenting our research methodology and the main findings, we relate our findings to the theoretical contribution we generated in order to apply the resource dependence theory to study the economic effects of online visibility on performance. Finally, we discuss the managerial implications of how hotels, and firms in general, should mix and balance their budget to procure Internet visibility on third-party channels.

Section snippets

Background: power relationships around online visibility in the hospitality industry

OTAs and aggregators of user-generated reviews, such as TripAdvisor, are essentially the two main typologies of Internet intermediaries that offer hotels the benefit of being visible to a global audience of travellers. They have changed the power relationships within the hospitality value chain by marginalising the role of travel agencies and have put hotels in a situation of relational dependence on them.

OTAs are Internet retail portals that attract travellers by making hotel rooms and

Theory and hypotheses

In their formulation of the resource dependence theory, Pfeffer and Salancik [2] identified two types of responses that organisations can enact to mitigate or eliminate their dependency on the providers of resources that are critical for their survival. First, organisations can absorb the constraints in the procurement of these resources through mergers and acquisitions with the providers or through infiltration in the board of directors of the dominant firm. The second type of response

Research settings

We chose the setting of small and medium-sized Italian hotels since it offers some unique points of interest. Italy has already been analysed in other studies on Internet visibility in the hospitality industry, and this offers an avenue of comparability with our results. Moreover, this country is the fifth largest international tourism destination [22], and the structure of its local hospitality industry is dominated by small hotels as well as bed and breakfast structures with weak brands. Such

Descriptive statistics

The descriptive statistics (Table 2) provide some useful indications about how online visibility generally works for hotels on external and proprietary channels. The correlations were found to be as expected. The number of OTAs was positively and significantly correlated with the review score.

Second, the number of OTAs was found to be significantly and positively correlated with the sales revenues of a hotel, thus highlighting that those hotels that choose to be on a greater number of OTAs are

Discussion and conclusions

Online visibility has increasingly become a factor of success in a variety of industries, and has been stimulating a growing body of research dedicated to examining its value implications for firms [e.g. 31]. We here contribute to this line of inquiry by presenting one of the relatively few studies that have specifically focused on how hotels should balance their dependence on different categories of online visibility providers, namely aggregation portals of user-generated reviews and

CRediT authorship contribution statement

Paolo Neirotti: Conceptualization, Writing - original draft, Writing - review & editing, Supervision, Project administration. Elisabetta Raguseo: Methodology, Formal analysis, Investigation, Resources, Data curation, Writing - original draft, Funding acquisition.

Acknowledgements

The authors acknowledge the support of the European Community through a Marie Curie Intra European Fellowship, called “FP7-PEOPLE-2013-IEF”, Project No: 622,531.

Paolo Neirotti is Full Professor at the Politecnico di Torino, where he teaches Managerial Economics and Strategic Management. He holds a PhD in “Economics and Management” from the Politecnico di Milano. His research interests are in the field of the strategic use of Information Technology, Management of Information Systems, and Strategy and Innovation. He is author of several research papers published in international journals including Industrial and Corporate Change, Information &

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    Paolo Neirotti is Full Professor at the Politecnico di Torino, where he teaches Managerial Economics and Strategic Management. He holds a PhD in “Economics and Management” from the Politecnico di Milano. His research interests are in the field of the strategic use of Information Technology, Management of Information Systems, and Strategy and Innovation. He is author of several research papers published in international journals including Industrial and Corporate Change, Information & Management, New Technology, Work and Employment, and Business Process Management Journal.

    Elisabetta Raguseo is Associate Professor at Politecnico di Torino (Italy). Previously, she was a Marie Curie research fellow at the business school Grenoble Ecole de Management (France) from 2014 to 2016. Her research and teaching expertise is in digital innovation, big data, impacts of digital innovation on the value chain configurations, business economics and smart working. Dr. Raguseo is author of several research papers published in international journals including International Journal of Electronic Commerce, Information & Management, International Journal of Information Management, and New Technology, Work and Employment.

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